BRUSSELS/LONDON (Reuters) - Europe's top court on Wednesday said an exemption granted to former British telecoms monopoly BT from paying into a pension protection fund constituted state aid and was therefore illegal, backing an EU regulatory decision made five years ago.
The European Commission ordered British authorities to recover the aid in 2009 because it gave BT an unfair advantage in breach of state aid rules.
BT and BT Pension Scheme Trustees Ltd subsequently challenged the EU decision in a lower court but lost.
They then appealed to the Luxembourg-based Court of Justice of the European Union (ECJ).
"The Court hereby dismisses the appeal (and) orders British Telecommunications plc and BT Pension Scheme Trustees Ltd to pay the costs," ECJ judges said.
BT received a guarantee at its 1984 privatisation that the government would stand behind its obligations to the pension fund should the group fail, called the Crown guarantee.
The group was subsequently also granted an exemption from an obligation to pay a contribution into a pension protection scheme introduced in 2004.
Europe ruled in 2009 that this exemption constituted state aid, a decision that BT and its pension scheme trustees appealed.
BT said it accepted but was disappointed by the Court's dismissal of the it appeal. Its shares reversed earlier losses and were trading up 0.5 percent at 1357 BST down 0.2 percent, in line with the wider FTSE 100 Index.
The telecoms group has been paying into a holding account a levy to the Pension Protection Fund (PPF) for the liabilities covered by the government since the court proceedings started in 2010.
This sum, less than 20 million pounds, will now be paid to the PPF, according to a source close to the company.
(Reporting by Robin Emmott and Paul Sandle; editing by Alastair Macdonald and David Evans)